Ben Bernanke Takes Questions At Federal Reserve Press Conference
Federal Reserve / USStreamThe FOMC just released the statement from its March meeting.
To sum it up, Federal Reserve bond buying is still full speed ahead at $85 billion per month, but the FOMC notes that fiscal policy has become somewhat more restrictive since the last meeting (i.e., sequester).
The FOMC also updated its economic forecasts. The Committee now thinks unemployment will fall faster than previously expected.
Below is a live blog of Bernanke's presser and Q&A.
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2:30 PM: Bernanke begins.
2:31 PM: Bernanke says the housing sector has seen further gains, payrolls are growing faster, and inflation is running below target, but unemployment, of course, remains elevated.
2:33 PM: Most on the FOMC see inflation eventually rising to target and agree that quantitative easing is supporting job creation.
2:35 PM: It bears emphasizing that the Committee views its actions in the context of monthly purchases, as opposed to total purchases.
2:37 PM: Asset purchases under quantitative easing are in order to increase near-term economic momentum.
2:38 PM: The employment situation has improved, but fiscal policy has become somewhat more restrictive.
2:39 PM: Q&A begins.
2:39 PM: The lack of quantitative thresholds for QE is due to the fact that it is a complex issue. Not only does unconventional monetary policy affect the economy, but it's also important for financial market stability. The Fed may adjust the rate of purchases from month to month at some point in the future.
2:40 PM: We will be looking for sustained improvement across a range of labor market indicators in a way that is taking place throughout the economy. We are looking at the outlook for future conditions as opposed to current conditions, which will allow us to look past short-term shocks or programs.
2:41 PM: The problem with having a single criterion for adjusting asset purchases is that it's "all-or-nothing." That would be very difficult for the markets to understand and anticipate. As we make progress toward our ultimate objective of substantial approvement, we may adjust the pace of asset purchases. We won't do it every month, or frequently.
2:43 PM: "Substantial improvement" means broad based improvement in a range of indicators – a period in which the labor market is doing better and we perceive it to be stronger. If the outlook worsened, we could bring purchases back to the "previous level."
2:44 PM: At each meeting, we will look at progress that has been made since the last meeting, trying to determine if there's been enough change to shift our policy stance.
2:46 PM: It's a difficult situation in Cyprus. In a financial sense, it's bigger than it is in a GDP sense, as its banking system is so much larger than its economy. The vote failed, and markets are up today, so I don't think the impact has been enormous.
2:47 PM: We at the Fed don't have an estimate for what is too big to fail or the subsidy banks gain from being too big to fail. There is some evidence of market discrimination. I never meant to imply that the TBTF problem is solved and gone. It's still here. But we're working on making progress toward it, with Basel capital rules and Dodd-Frank regulation.
2:49 PM: I don't have a strong view on term limits for central bankers. The President always has the option of appointing or re-appointing Fed chairmen, and Congress can confirm or deny. So, term limits are redundant.
2:51 PM: I have a relative that is unemployed. I come from a small town in South Carolina that has taken a big hit from the recession. The home I was raised in had just been foreclosed upon when I visited there last. I think it's very important that we act to address unemployment, and I think that most would agree that the Fed has been fairly active in that regard.
2:53 PM: We have not been able to agree on what guidance we should give on asset purchases. As we go forward, we have to factor in the efficacy of those purchases, which is another issue. As we move forward in time, we'll be learning more about how effective the policy is, and the risks arising from it. I agree that it would be more effective if we could give numerical guidance.
2:55 PM: Capital is an important element in addressing too big to fail. One of the things that will be proposed is surcharges on the largest banks (they will have to hold more capital as a percentage of assets than smaller banks). That should equalize their cost of funding with other banks and make a failure safer, because the risk is more limited.
2:58 PM: The tightening of credit in mortgage markets – our sense is that it's gone too far. Some tightening is obviously needed. We are now seeing much higher credit quality requirements on potential borrowers. That does have some effect on monetary policy. One of the most powerful tools we have is bringing down mortgage rates – stimulating home buying and construction-related industries.
2:59 PM: The number of borrowers underwater on their mortgages goes down as house prices go up, and this is providing an improvement in credit quality for those people. I don't want to overstate it, but higher prices are bringing more people into the mortgage market.
3:00 PM: We are not targeting asset prices or measuring our success by the stock market. While the Dow may be hitting a high, it's in nominal terms and not real terms. I don't think it's all that surprising that the market would rise, given the increased optimism in the economy, and profits are high.
3:02 PM: CBO estimates that putting together the fiscal cliff, the sequester, and other cuts, fiscal restraint is cutting something like 1.5 percentage points off of economic growth. We take as given what the fiscal authorities are doing. The economy is weaker than it would be otherwise. Monetary policy cannot offset fiscal restraint of that magnitude. The final outcome in terms of jobs will be worse than without that fiscal restraint. However, long-term, it is important to put the country on a sustainable fiscal path (not necessarily in the short term).
3:05 PM: There's been some disconnect in the short run between unemployment rate changes and growth. We are just going to have to measure developments in the economy and see what happens. We're not necessarily projecting strong growth, but the unemployment rate outlook is considerably lower than per the previous forecasts.
3:06 PM: The reason for publishing the severely adverse scenario from the stress tests is because that is the ultimate test. If they can survive the severely adverse scenario, they can survive a less stressful adverse scenario. The severely adverse scenario is mostly a scaling up of the adverse scenario. We found generally that banks can sustain an increase in long-term interest rates. One reason is that it increases their franchise value – net interest margins will rise over time.
3:10 PM: The reason we define "price stability" as 2 percent inflation is because if you're at zero inflation, you're very close to a deflation scenario. We haven't contemplated changing that, but it's currently being debated in academic circles, and we'll see what comes out of that.
3:14 PM: I think the issue Cyprus faces is that there is a pretty big financial hole in the sense that there is a fiscal issue and a bank restructuring/recapitalization issue. They are looking for resources where they can find them. There is the issue of setting a precedent that could reduce confidence in banks in certain periods. It's a very tough issue, and finding the resources to solve the Cyprus problem – there's probably no easy way to do it.
3:16 PM: The reason for the spring slump we've been observing each year could be due to statistical issues with seasonality. However, that should have washed out by now. If we see another similar slump, there could be more fundamental basis for it.
3:18 PM: I don't think a bank run in Cyprus has direct implications for the U.S. economy unless depositors in other countries lose confidence. I'm not aware that there is any evidence that is the case at this point. I consider a deposit tax to be extremely unlikely in the U.S.
3:20 PM: Labor force participation has been declining on a trend-like basis in the U.S. for a while, mostly due to demographic factors – the aging of the population and the fact that female participation is starting to decrease a bit. There's a trend underlying this, and there are some people who have left the labor force because they've been discouraged and can't find work. As the economy strengthens, they could re-enter the labor force. I doubt in the near term that we will see an increase in labor force participation because of that underlying downward trend.
3:22 PM: Monetary policy is a very blunt instrument. If you are raising interest rates to pop an asset bubble, you may also at the same time be throwing the economy into a recession, which kind of defeats the purpose of monetary policy. If the economy is weak, it's difficult to contemplate raising interest rates a lot to counter something in the financial sphere.
3:25 PM: I've spoken to the president a bit, but I don't really have any information for you on my future at this juncture. I don't think I'm the only person in the world who can manage the exit." There is no single person who is essential to that. Regarding my personal plans, I will certainly let you know when I have something more concrete.
3:27 PM: Q&A concludes.